Studies On The Reform Of Tax Sharing System And The Development Of Local Finance

Through the reform of tax sharing system since 1994 a new financial management system was established. There have been many new problems in the operation of county and township finance, i.e. there have been financial difficulties at county and township levels. It is an urgent need to study and resolve the problems of current financial difficulties in of counties and townships.Based on fiscal decentralization and local finance theory, this paper studies the finance of local county and township levels. It analyzes the local financial situation and in particular the financial difficulties counties and towns are facing. The paper invokes relevant statistical data for comparison and analysis, from the point of view of local fiscal revenue and expenditures. It analyzes the impact of reform of tax sharing system in China on local financial development of local counties and towns, and particularly in Zaozhuang City and Zibo City, Shandong Province. After having implemented the tax sharing system for more than 10 years the data shows empirically that due to shortcomings in the reform of tax sharing system, it seems that we should adjust responsibility of handling affairs among governments at local and central levels, the tax mix and transfer payments system. Because there were no corresponding supporting reform measures in place, local finance in particular the county and township was adversely affected, and this directly caused the county and township a series of financial problems of atrophy of tax sources, increased responsibilities and expenditure, and growing local governmental debts. Finally, on the basis of the above analysis, the paper gives the solution to this problem.The new point of this paper is on the reform of tax sharing system and local finances. First, it systematically studies in particular the relationship between the county and township finances and the reform of tax sharing system. Secondly, it makes some recommendations about how to improve the financial reform of tax sharing system in the counties in Shandong province to promote the healthy development of local finance.